What is reinsured

Property reinsurance protects insurers that cover apartments and houses, offices, warehouses, shopping centers, plants, equipment and inventory. The main perils are fire, explosion, natural catastrophes (flood, windstorm, hail, earthquake), water damage and malicious acts of third parties. Business interruption, meaning lost profit and fixed costs during recovery after a loss, is often reinsured together with property, along with machinery breakdown.

For clients these are direct lines: insurance of apartments and houses, corporate property and construction and erection risks. Reinsurance works behind the scenes, allowing the insurer to accept large assets without putting its capital at risk.

Which treaties are used

  • Quota share: for mass portfolios of homes and small businesses, to relieve capital. See proportional reinsurance.
  • Surplus: for commercial assets with widely differing sums insured.
  • Per risk excess of loss: protects the retention on a large asset.
  • Catastrophe excess of loss: protects against the accumulation of losses under many policies from one natural event. See non-proportional reinsurance.
  • Facultative: for the largest industrial risks that do not fit the treaties. See facultative reinsurance.

Large industrial risks

For a plant, the reinsurer needs a survey report, a description of the production process, fire protection and safety measures, and loss estimates: the maximum possible loss (MPL, assuming all protection systems fail) and the probable maximum loss (PML, assuming they work normally). These estimates determine how much the insurer will retain and how much capacity has to be found on the market. Business interruption is assessed separately: dependence on a single supplier or a key unit can multiply the loss.

Business interruption

Business interruption insurance compensates lost gross profit and fixed costs while the enterprise recovers from a property loss. For the reinsurer this is the hardest part of the risk to assess: it needs to understand how long recovery will take, whether there is spare capacity, how quickly equipment can be obtained and whether a chain of losses could arise among suppliers and customers. That is why treaties often set separate limits and indemnity periods for business interruption.

Catastrophe risks

The main task is accumulation control: how much insured value is concentrated in one flood zone, one city or one industrial hub. This requires accurate addresses, sums insured and building characteristics. Data errors lead either to overpaying for reinsurance or to insufficient protection. In treaties, the hours clause matters, as it defines which losses count as one event.

Practice in Russia

Russian property portfolios are exposed to spring floods and inundation, major fires, windstorms and snow loads and, in seismic areas, earthquakes. Reinsurance is governed by Article 967 of the Civil Code and Law No. 4015-1. JSC Russian National Reinsurance Company (RNRC), founded by the Bank of Russia, participates in programs: insurers must offer it a share of the risks they cede to reinsurance (50% of the ceded obligations as a general rule), and risks connected with sanctioned persons are ceded to RNRC.

Since 2022, Western reinsurers have mostly withdrawn from Russian industrial risks, and capacity for the largest assets has become scarce. It is assembled from shares of Russian insurers (co-insurance), RNRC, Russian reinsurers and reinsurers from countries that have not joined the sanctions. This affects prices, limits and deductibles for end policyholders.

What matters

  • An up-to-date valuation: underinsurance leads to a proportional reduction of claim payments.
  • Consistency of reinsurance terms with the original policy: perils, exclusions, deductibles.
  • A risk improvement program based on the surveyor's recommendations.

How Polis Re helps

Polis Re specialists help prepare information on the asset and the portfolio, select reinsurers and reinsurance intermediaries, compare offers and support the placement. Definitions are in the insurance glossary. Submit a request to discuss a risk.